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Santiago - March, 03 2004
LanChile S.A. ("LanChile" or "the Company") (NYSE: LFL), Chile s largest domestic and international passenger and air cargo carrier, announced today its audited consolidated financial results for the fourth quarter and full year ended December 31, 2003. All figures were prepared in accordance with generally-accepted accounting principles in Chile and are expressed in U.S dollars.
Net income for the full year amounted to a record $83.6 million, more than 2.5 times the previous year s result, and marked the Company's tenth consecutive year of profitability. Operating income for 2003 was $111.7 million, an 80.0% increase compared to 2002.
LanChile earned an unprecedented $35.2 million in net income for the fourth quarter, more than twice the $15.5 million in net income reported for the same period of 2002.
Operating income for the quarter grew 97.7% from $21.2 million in 2002 to $41.9 million in 2003. Operating margins grew 3.8 points to 8.8%, as a 12.6% increase in revenues outpaced an 8.1% increase in operating costs.
Fourth quarter passenger revenues increased 22.8% due to a 20.6% increase in traffic and a 1.8% increase in yields. Cargo revenues grew 20.4% due to a 9.8% increase in traffic and a 9.6% growth in yields.
Unit costs for the quarter were up 5.4%. Increased operating costs for the quarter reflected capacity growth and higher fuel prices, which led to $2.9 million in additional expenses. Excluding the fuel price impact, unit costs increased 4.6% as operating costs grew 6.5%.
During the fourth quarter LanChile incorporated its eleventh Boeing 767-300 passenger aircraft, and its first two Airbus A319 aircraft.
During the fourth quarter, LanChile added two new European destinations as part of its alliance with Iberia: Brussels (in October) and Milan (in December).
On January 30th, the Comisión Resolutiva (Chile s antitrust regulator) closed the case on alleged violations of LanChile s self regulation plan between 1997 and 2003. After reviewing LanChile s arguments, the authorities reduced the proposed fine by 90%, from approximately $500,000 to approximately $50,000.
On February 4th, LanPeru initiated a growth plan comprising the addition of routes to Argentina, Colombia, Ecuador, Mexico and Venezuela.
LanChile earned $83.6 million in net income for the full year 2003, an increase of 171.2% over the $30.8 million reported in 2002 and the highest annual result in the Company's history. Net income for the fourth quarter of 2003 more than doubled as compared to last year and amounted to an unprecedented $35.2 million. These results highlight LanChile s ability to successfully manage a challenging environment of high fuel prices and volatile demand. By diversifying revenues, carefully managing capacity, focusing on customer expectations, and controlling costs, the Company has consistently added value and delivered strong performance for its shareholders.
Operating income for the fourth quarter amounted to $41.9 million, nearly twice the $21.2 million reported in 2002. Operating margins grew 3.8 percentage points to 8.8% as a 12.6% increase in revenues outpaced an 8.1% increase in operating costs.
The double digit increase in total revenues for the quarter reflected a 22.8% increase in passenger revenues, and a 20.4% improvement in cargo revenues. Passenger revenues amounted to $262.9 million reflecting a 20.6% increase in traffic and a 1.8% improvement in yields. Load factors improved 6.1 points as traffic growth outpaced a 10.4% increase in capacity. Increased yields and traffic led to a 11.2% growth in revenues per ASK.
International traffic grew 28.7%, fully offsetting a 4.6% decline in domestic traffic. Demand in key points of sale, such as Chile, continued to recover with improved economic expectations and stronger local currencies. These gains offset some contraction in both the Peruvian and Ecuadorian markets. The Company grew capacity, both on regional and long-haul routes, in line with improved demand and increased market share in international operations. The Company also leveraged its efficient cost base and strong customer preference to launch new operations from Peru and Ecuador to Spain and Argentina. Weaker domestic passenger traffic reflected softer demand and increased competition. However, during the fourth quarter, domestic demand showed signs of slight recovery, and the Company recovered some market share from losses in previous quarters. Total passenger yields increased due to the appreciation of the Chilean peso and from improved segmentation in international routes.
Cargo revenues amounted to $181.2 million and grew over the fourth quarter of 2002 due to a 9.8% increase in traffic and a 9.6% increase in yields. Traffic grew slightly less than capacity (+9.9%) leading to stable load factors and a 9.5% increase in revenues per ATK. The recovery in cargo traffic reflected improved southbound demand to Argentina, Brazil, and Chile; strong northbound volumes; and market share gains. As it has in the past, the Company also added variable capacity through up to three wet-leased Boeing 747 freighters to satisfy increased demand. Yields increased due to improvements in fares and a cargo fuel surcharge.
Other revenues declined 43.4% and amounted to $33.9 million. This decline reflected a strong comparison base given accounting adjustments for the consolidation of LanLogistics full year 2002 results into the Company's fourth quarter 2002 results. On a comparable basis, other revenues fell 0.1% as lower aircraft lease revenues were offset by increased handling and on-board sales.
The LanLogistics consolidation also distorted operating costs, which on nominal terms were up 8.1%. On a comparable basis, operating costs were up 16.6%, with personnel expenses (+29.4%) and other operating expenses (+17.2%) being the accounts most affected by this change. On a comparable basis, overall unit costs (which include operating costs and net financial expenses) were up 6.4% total as capacity increased 10.2%. Higher fuel prices accounted for $2.9 million in additional expenses. Excluding the impact of high fuel prices, unit costs (on a comparable basis) increased 5.6% due to increases in personnel costs, commissions, and other rental and landing fees. These cost increases were partially offset by reductions in depreciation and amortization, and aircraft rentals.
During the quarter, the Company also continued to strengthen its financial position. As of December 31, 2003, it had $219 million in cash and equivalents, up from $159 million in 2002. The Company continues to maintain no short-term debt, and all of its long-term debt is related to aircraft, featuring low interest rates and long repayment profiles. The Company has also hedged its exposure to fuel prices and approximately 50% of the Company's estimated fuel consumption for 2004 has been hedged.
The fourth quarter was also a period of significant strategic achievements for the Company. On February 4th, LanPeru initiated a growth plan with the launch of flights to Buenos Aires and Quito. Flights to Caracas, Bogota and Mexico City from Lima, are expected to start in the first half of 2004 and will complement the Company's existing operations from Lima to Santiago and Guayaquil. While this will expand LanPeru s revenue base, it will also enhance efficiency by increasing the utilization of short-haul aircraft.
During the quarter, the Company also continued adjusting its fleet to support future growth. In December, an additional operating leased Boeing 767-300 passenger aircraft was added to the fleet and plans were made to add four more Boeing 767-300s during 2004, the first of which is expected to join the Company's fleet in March. In December, LanChile also continued to improve its short-haul fleet by incorporating its first two new Airbus A319 aircraft. The slightly reduced size of the A319 will help improve operating economics on domestic routes and represents no additional operating costs as it is a member of the A320 aircraft family.
In the cargo business, the Company has also made fleet improvements by replacing its one DC-10 wet-lease with two Boeing 747 wet-leases, with a third added for the December high season. The Company's wet-lease structure provides for significant flexibility in capacity and has enabled the Company to respond effectively to increased seasonal demand.
LanChile s has been not only to maintain, but also to improve profitability in the 2000-2003. For the full year, LanChile earned an unprecedented $83.6 million, a 171.2% improvement over the previous year. Despite continued challenges, the Company grew its revenues 12.8% and expanded operating margins 2.5 points to 6.8%. The Company's success in 2003 highlights the resiliency of its business model, competitive strength, ability to adapt to changing market conditions, and strong financial condition. LanChile and its affiliates are today in an unprecedented position to continue taking advantage of improvements in demand and competitive opportunities. The Company remains confident about its potential to grow revenues and profitability throughout 2004 and to grow its position as Latin America s leading airline.
For the fourth quarter of 2003, the Company reported US$41.9 million in operating income compared to US$21.2 million for the same period of 2002. Net income amounted to US$35.2 million compared to US$15.5 million net profit in 2002.
Total operating revenues amounted to US$477.9 million, a 12.6% increase compared with the fourth quarter of 2002. This reflected a 22.8% increase in total passenger revenues to US$262.9 million, a 20.4% increase in cargo revenues to US$181.2 million, and a 43.4% decrease in other revenues to US$33.9 million.
Passenger revenues advanced due to a 20.6% increase in traffic and a 1.8% increase in yields. Traffic growth outpaced the 10.4% capacity increase, leading to a 6.1 point increase in load factors to 71.5%. Traffic growth comprised a 4.6% decrease in domestic traffic, which was fully offset by a 28.7% increase in international traffic. Yields reflected a 9.9% increase in average trip lengths which was offset by better segmentation and improved domestic yields due to a stronger Chilean peso.
Cargo revenues grew due to a 9.6% increase in yields and a 9.8% increase in traffic, measured in RTKs. Yields rose primarily due to an improved competitive environment and the application of a higher fuel surcharge. Growth in cargo traffic was slightly outpaced by a 9.9% increase in capacity, resulting in a 0.1 point reduction in cargo load factors to 67.6%.
Other revenues declined 43.4% mainly due to the accounting adjustment in 2002 for the consolidation of LanLogistics full year results into the Company's fourth quarter results. On a comparable basis, other revenues declined 0.1% as reduced aircraft lease revenues were partially offset by higher on-board sales, and increased handling services to third parties.
Total operating expenses increased 8.1% during the quarter as capacity, measured in system ATKs, increased 10.2%. The year-over-year comparison was also impacted by the consolidation of LanLogistics full year results into 2002 s fourth quarter results and on a comparable basis, operating cost grew 16.6% and per unit (ATK) costs (which include total operating expenses as well as net financing costs) increased 6.4%. Excluding the impact of higher fuel prices, per unit costs increased 5.6%. On a comparable basis, wages and benefits increased 29.4% due to the impact of a stronger Chilean peso on domestic wages, increases in headcount, and higher bonus payments. Fuel costs rose 19.8% due to a 4.1% increase in prices and a 15.1% increase in consumption. (During the fourth quarter of 2003, the Company recorded a $3.3 million fuel hedging gain compared to a $1.8 million gain in 2002, which are recorded as non-operating gains/losses). Commissions to agents grew 22.9% due to increased passenger and cargo revenues, as well as higher average cargo commission rates. As a percentage of traffic revenues, commissions to agents increased 0.1 percentage points to 14.6%. Depreciation and amortization expenses fell 10.9% as the impact of the incorporation of new aircraft in late 2002 was fully offset by increased depreciation charges in 2002 for the accelerated phase-out of equipment. Other rental and landing fees increased 27.5% because of higher landing charges in specific international airports and increased wet-lease and allotment expenses. Passenger service expenses increased 22.7% in line with increased passenger traffic. Aircraft rentals declined 16.4% as the incorporation of new aircraft was fully offset by the reduction of lease rates during the first quarter of 2003 and the return of leased aircraft. Maintenance expenses increased 10.7% in line with increased operations. Finally, on a comparable basis, other operating expenses increased 17.2% due increased sales related expenses.
Operating margins for the quarter increased 3.8 points to 8.8%. Total non-operating results for the fourth quarter amounted to a gain of $1.3 million gain compared to a $2.4 million loss in 2002. While interest income more than doubled due to higher cash balances, interest expenses decreased 4.2% due to the lower interest rates and a reduction in average debt. In the miscellaneous net line, the Company recorded a $8.4 million gain, mainly related to a $3.3 million fuel hedging gain as well as a $6.6 million foreign-exchange gain. Consequently, net margins improved from 3.6% in 2002 to 7.4% in 2003.
For the full year 2003, the Company reported US$111.7 million in operating income versus $62.1 million in 2002. Net income for the same period amounted to a $83.6 million profit in 2003 compared to $30.8 million in 2002.
Total operating revenues increased 12.8% reflecting a 14.3% improvement in total passenger revenues, a 15.6% increase in cargo revenues, and a 7.5% decrease in other revenues. System RTKs rose 7.6% while system ATKs increased 6.0%, leading to a 1.0 point improvement in system load factors, which amounted to 67.2%. Unit revenues, as measured per ATK, increased 8.3% due higher load factors and a 6.7% improvement in total per unit system yields as measured per RTK.
Total operating expenses increased 9.8% for the full year as capacity grew 6.0%. As a result, per unit (ATK) costs, which include total operating expenses and net interest expenses, increased 4.7%. Wages and Benefits increased 11.9% due to increased headcount, the impact of a stronger Chilean peso on domestic wages, and increased performance-related bonuses. Fuel expenses rose 26.3% due to a 18.7% increase in prices and a 6.4% increase in consumption. Higher fuel prices implied an additional $40.9 million in operating expenses. (The Company recorded a $12.3 million fuel hedging gain for 2003 compared to a $5.5 million loss in 2002, which are recorded as non-operating gains/losses). Commissions to agents grew 16.2% due to revenue growth and increased cargo commissions. Depreciation and amortization rose 7.1% due to the acquisition of four new Airbus A320s, and two used Boeing 737s, as well as to changes in depreciation policies. Other rental and landing fees rose 13.0% as increased landing charges and wet-leased expenses were offset by lower insurance costs. Passenger service expenses grew 12.1% due to increased passenger traffic. Aircraft rentals decreased 12.9% as the incorporation of new Airbus A320s and Airbus A319s in late 2002 and 2003, respectively, was fully offset by a reduction in lease rates and the return of Boeing 737 and DC-8 aircraft. Maintenance expenses grew 2.9% as the impact of increased operations was offset by efficiency gains related to the incorporation of newer aircraft and the effects of a $5.0 million one-time reduction in expenses in 2003 and a $3.6 million one-time reduction in expenses in 2002. Other operating expenses increased 2.7% due to increased sales-related costs, and higher marketing expenses. Operating margins for the full year advanced 2.5 percentage points to 6.8%.
LanChile Incorporates New Airbus A319 Aircraft and Additional Boeing 767-300 Aircraft In December, LanChile incorporated its first two Airbus A319 aircraft. The A319 is a slightly smaller version of the Airbus A320 aircraft and has been deployed mainly on domestic routes with one-class configuration featuring 136 seats. The Company also incorporated an eleventh Boeing 767-300 passenger aircraft in order to support the expansion of international operations.
On January 30th, the Comisión Resolutiva (Chile s antitrust regulator) announced its final decision on alleged breaches by LanChile of its self regulation plan between 1997 and 2003. Based on the commission finding that the breaches found were not significant, the fine was reduced from approximately $500,000 to approximately $50,000.
On February 4th, LanPeru launched a new daily service from Lima to Buenos Aires as part of its growth strategy. In addition to Buenos Aires, LanPeru has flights to Santiago, Quito, Guayaquil, and Caracas, and expects to initiate service to Bogota and Mexico City in the first half of 2003.
In the fourth quarter LanChile and Iberia expanded their alliance to include two additional destinations in Europe: Brussels and Milan. LanChile now offers service to Madrid and Frankfurt through its own operations and to seven additional operations through code-share agreements with Iberia and British Airways.
